If you are thinking of starting to invest your money in the currency market, you may be wondering about the secret of this hype around it and why you see everywhere you go advertisements for online forex brokers promoting the idea of starting trading with a very small capital, which may reach $ 100, with attractive promises. making huge profits.
Before jumping into this perilous world, you should consider your current situation very carefully. The forex market is not suitable for everyone: this saying is true,
you can start with a very small investment and you may even be able to earn 10% per day, but unless you are fully aware of what you are doing, the possibilities of losing all your money in the first transaction seem very likely.
Advantages of forex trading
You can start with very low capital with the possibility of using leverage by getting a loan from your broker (usually 50 to 400 times your initial investment).
This means that you can for example invest $100 and then “pretend” that you are actually investing up to $40,000, depending on the leverage used. This means that any small change in the market will be reflected in the form of large profits or losses for your open positions.
Another advantage of forex trading is that you are able to practice trading from the comfort of your home. Many online brokers also offer different payment methods, such as PayPal, so you won’t find any obstacles to start trading.
Trading hours are also a plus: unlike in the case of the stock market, you can trade currencies 24/5 (or even 24/7 if you’re trading cryptocurrencies), so you don’t have to get up in the middle of the day to find the right time frame to trade. This saying is true to some extent, but note that the market tends to be more active during certain periods, while witnessing a state of calm at other hours.
One of the important advantages that some attribute to the forex market is its high liquidity, which simply means the ability to profit from both rising and falling markets, as well as avoiding paying any commissions or fees. Finally, the forex market has countless online brokerage firms.
Disadvantages of forex trading
Many novice traders forget that leverage can work against you as much as it works for you. The fact of the matter is that not using this important tool wisely can result in huge losses and being out of the market in the long run.
Moreover, being able to start trading with very low capital does not actually mean that you should do so — many novice forex traders ignore this fact and rush to start with small balances eventually losing all the money in no time due to restrictions. associated with capital, which usually leads to greater risk exposure.
Finally, do not forget that obtaining a sufficient amount of education is one of the essential factors for the success of any forex trader. It can even be said that you cannot continue in this market without being sufficiently scientifically qualified. This fact is very important
especially if you know that some traders design their strategies in a way that specifically aims to earn profits from the mistakes of less experienced traders!
The currency market is the largest and most liquid financial market of all. However, only a very limited percentage of traders achieve success in this exciting world. Although some blame a lack of self-discipline and poor trading strategy for the vast majority of significant losses,
there are some inherent factors in the forex market that make it a very dangerous place. In the coming lines, we will take a look at these factors that do not make the forex market an ideal place to make profits.
Why is the forex market not an ideal place for traders?
Economic data and geopolitical events affect the value of currencies either positively or negatively. However, explaining these fundamental factors is not an easy task.
Some positive economic reports may weaken the currency, not strengthen it as expected, due to its association with a number of other factors. For example, there is an inverse relationship between the Japanese yen and the Nikkei index.
When the Nikkei is rising, the value of the yen usually declines even if economic indicators are better than analysts’ expectations. Therefore, if the trader opens a long transaction based on the positive economic data, he will face a loss if the stop orders are placed at close levels.
One piece of evidence supporting this argument is the dramatic events in the life of John Maynard Keynes, one of the most important and greatest economists in human history.
Keynes was responsible for founding the World Bank and the International Monetary Fund, and he gave economics one of his most important theories ever, which shattered the myth that the free market is capable of automatically achieving full employment. With the end of World War I, Keynes decided to enter the currency trading market and even collected money from his friends for this purpose.
Of course, someone with such a titanic mindset would have been able to achieve great success as his wealth of knowledge would have helped him predict the major trends of the currencies. Nevertheless, against all expectations, Keynes lost all his money.
Many cite this example as an indication of how difficult it can be to work in the forex market even for an economist of John Keynes stature.
Not having consistent expectations
It often happens that a trader fails to read the situation in the currency markets correctly, which ultimately leads him to wrong conclusions.
For example, a currency may be in a state of weakness, but it is really just a consolidation phase before starting a new uptrend that is supported by some macroeconomic factors. highlighted